The USDA has released the details of its COVID-19 relief package for U.S. farmers. This package will provide $16 billion for U.S. crop farmers and will be based on a per bushel payment. Payments will be based on either 50% of the 2019 production or 2019 inventory on January 15, 2020, whichever is the least. The package will also contain payments for livestock producers and will be based on production and inventory as well. Payments will also be included for specialty crop and dairy farmers. In addition to these payments, the USDA will purchase $3 billion in commodities for U.S. food distribution programs.

Corn planting across the United States is in its later stages, but these may be the hardest acres to complete. Much of the remaining area to be planted is in fringe states where weather has been less than perfect. The greatest area of interest is in the Dakotas, where a combined 4.5 million corn acres remain unplanted. This is also where we are seeing standing crops from last year. A quote from a reporter in this region stated, “I have more old crop in the field than new crop.” While a portion of these acres will still be planted, given the fact we are nearing the final plant date for insurance and current market economics, it is less likely we see the 97 million corn acre prediction from the USDA.

The price spread between new crop corn and soybeans is also impacting acreage projections. This ratio finished the month of April at 2.53:1. This means it takes 2.53 bushels of December corn to equal the value of 1 bushel of November soybeans. When data was collected for the March planting intentions report this spread was at 2.4:1. Historically, the wider this price spread gets, the more soybean production we start to see. Given the questionable demand we are seeing in corn, this may also encourage farmers to plant more soybeans this year.

Economists are trying to predict how bad the demand destruction we have seen in the energy complex will become. In April the USDA reduced its corn demand projections for the ethanol industry by 375 million bushels. This put yearly consumption on corn at 5.05 billion bushels. We now have some economists claiming the actual usage figure will be closer to 3.25 billion bushels given the number of ethanol plants that have recently closed. The wild card in this is how many refiners may halt operations to slow the build of gasoline reserves.

The greatest unknown in the renewable fuel industry is one that is impossible to predict, and that is when activity will start to return to normal levels. There are concerns that travel will take years to rebuild, and it may never reach the levels seen prior to the COVID-19 outbreak. This is not just in the United States, but globally. Some believe the timeframe will be much sooner, however. Obviously the longer a return to more normal routine takes the less energy demand. At the present time the ethanol industry is consuming nearly 7 million bushels less corn per day than before the outbreak happened.

When it comes to commodities, one factor that has had as much impact as anything fundamental over the past year is the U.S. dollar. The U.S. dollar has rallied to all-time highs, while we have seen other currencies drop to record low values. The ones receiving the most attention is the Brazilian Real and the Argentine Peso. The spread between the U.S. dollar and these currency values have caused importers to avoid the U.S. as they can get a better bargain when covering needs elsewhere. These sellers have also been actively making exports as all commodity sales in the world market are based on the U.S. dollar, and this is generating farmers record revenue. This disparity in values is why some countries are starting to push even harder for a global currency.

Following recent market activity, the United States is again highly competitive in the global market on corn. In fact, corn from the U.S. is an economical buy through the fall months. This is in part from the recent drop in corn values, but also from the weakening we have seen to the U.S. dollar. The one holdup to US corn sales remains quality, and how the U.S. needs to be the cheapest source to compensate for low grades.

The United States may soon see less competition in the global market on soybean sales. Reports out of Brazil indicate the country has nearly reached its forecasted sales projection on soybeans. While this does not mean we will not see ongoing exports, Brazil may be hesitant to extend its soybean sales. This follows last year’s heavy corn selling that overextended coverage and eventually led to Brazil making corn imports. This will put more emphasis on U.S. soybean sales over the next few weeks.

When it comes to the U.S. livestock industry, exports are not an issue. In fact, exports are considerably higher on both beef and pork compared to a year ago. U.S. beef exports are up 26% from last year at this point. Pork exports are up a tremendous 116% from a year ago. What is a hindrance on the livestock industry, especially on pork, is over-production.

This commentary is the sole opinion of Karl Setzer, market adviser for AgriVisor. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to contact Karl at ksetzer@agrivisor.com. You can also follow Karl on Twitter via @ksetzergrains.